RBNZ Not Dovish Enough

The RBNZ cut rates by 25 basis points but didn't promise any further cuts and toned down its jawboning, sending the kiwi higher. On Wednesday, the pound was the top performer while the loonie lagged. Japanese trade data is next. A new Premium note and 3 charts have been added to GBPUSD. EURCAD long is currently netting 350 pips gain, while USDCAD long is +100 pips. EURAUD long is + 130 pips gain.

The market wanted ultra-dovish from the RBNZ but got only a rate cut and a hint at more in the future. There was speculation about a 50 basis point cut but Wheeler only lowered rates by a quarter-point to 3.00% and said some further easing seems likely.

The market was looking for a harder commitment towards another cut in September. There was even talk about rates at 2.00% at year-end but it now appears the central bank will be a bit more patient. NZD/USD jumped to 0.6647 from 0.6560 on the headlines.

Anti-NZD jawboning was also toned down to reflect the +10 cent fall in the kiwi since May. In June, Wheeler said “A further significant downward adjustment is justified,” in the New Zealand dollar and this time he said “further depreciation is necessary.”

What's next? New Zealand data and dairy prices will be closely monitored but after a crash in NZD/USD to 0.6500 from 0.7700 in a straight line over the past three months, this could spell a period of consolidation, barring any extra Fed hawkishness.

It's one week until the FOMC decision and Yellen got some good economic news as existing home sales rose above the 2009 highs, up 2.49M vs 2.40M expected. That helped underpin a broad rebound in the US dollar after Tuesday's declines. The commodity currencies were under extra pressure as WTI crude fell 3.2% to below $50.

Up next, the focus shifts to how the weak yen is affecting Japanese exports. Trade balance data is due at 2350 GMT and expected to show a June surplus of 45.8B yen. The line to watch is exports, which are expected up 10.0% y/y. A strong reading could curb BOJ easing speculation and weigh on USD/JPY.

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